Half Empty, or Half Full?

Anticipating any market's performance is always a risky business. Economic predictions are based on information about past events, and despite the human tendency to search for cause-and-effect relationships, there is no guarantee that past occurrences will repeat themselves in the future. Predicting the performance of a market with so little transparency such as that of art sales is like playing Russian roulette. Yet many are betting on the results of the spring auction season which begins tonight with Sotheby’s Impressionist and Modern evening sale.

According to the Mei Moses Art Index, art market prices plunged 35 percent in the first quarter of 2009. One of the few existing barometers of the art market, this index tracks the performance of a sample of approximately 5,000 art works (13,000 pairs) which have come to auction at least two times since 1875. Comparing the different prices between the first and subsequent times works appear in the market, it estimatesthe annual return rate of each particular work. Using a similar methodology to Standard & Poors Real Estate Index, the information pertaining all the tracked works is combined to produce a figure that roughly represents the rate of return of the art market as whole for a particular year. Roughly speaking, , people selling in 2009 can expect to make prices 35 percent below what they would have made in 2008, According to the Index .

As former New York University professors Jianping Mei and Michael Moses point out, this index is based on New York auction data. And as the repeated sales methodology indicates, it tracks only a relatively small number of works in the market. It neglects certain categories altogether, as well as emerging and mid-career artists whose works have only been traded in auction once; it certainly doesn’t take into consideration what is happening at galleries and private sales, which may represent between a half and two-thirds of the global art market. (Mei and Moses point out that the S & P is also based on a limited amount of data -- about 10 percent of the stocks traded on US floors.) These methodological limitations don't make that 35 percent drop a less chilling figure -- especially for those who bought speculatively in the last few years.

For others however, such a figure may be a good incentive to buy. It doesn't necessarily mean your dealer will offer a 35 percent discount on that coveted Warhol; prices are contingent upon multiple factors, and ultimately every artist has a different market. But for buyers -- again, generally speaking -- this month's sales could offer opportunities to buy art at prices considerably below what they would have fetched a year ago.